Pro-incumbent bias alleged in FCI tender

Pro-incumbent bias alleged in FCI tender

New Delhi: Some insurance brokers in the Capital are alleging that a restrictive clause in a Food Corporation of India (FCI) tender for marine insurance is deliberately aimed at letting the incumbent retain the business.

The tender covers insurance for goods, mainly wheat, that are transported by the state-owned FCI within India. The FCI paid Rs69 crore last year to obtain an insurance policy and has recieved claim reimbursements totalling Rs65 crore against the policy.

At issue is a key clause in the FCI’s tender that says the minimum qualification for a broker to be eligible to bid for the business is to have experience in handling and settling at least 3,000 marine, or inland transit, insurance claims in a year.

Several brokers, none of whom want to be identified for the fear of reprisals or losing future business with the FCI, point out that that experience is available primarily with just one broker—the incumbent—and that too because the incumbent obtained the experience by working with the FCI in the previous contract period. “Only one company, who did the marine insurance contract for the FCI last year, can fulfil this stringent condition of 3,000 claims," said a New Delhi-based broker.

On top of that minimum requirement regarding number of claims, the tender also says that only Indian brokers having a registered or corporate office in the National Capital Region can apply, further limiting potential bids.

The most recent contract, which came into effect from September 2005, was bought from The Oriental Insurance Co. Ltd through a New Delhi-based insurance broker, A&M Insurance Brokers Pvt. Ltd.

Devinder Kumar Jain, group head of A&M Insurance Brokers, refused to comment on this issue. Jain, who met this reporter near Mint’s office, insisted that the reporter was “biased" and demanded to know who the reporter was talking to about the tender. He also threatened to sue HT Media Ltd, the publisher of Mint, as well as the reporter, if anything is written about him.

Nobody is disputing that the FCI has thousands of claims that need to be handled. And Mint could not independently ascertain how critical this minimum experience level is in successfully addressing the FCI’s needs. One FCI official, who did not wish to be named because he is not authorized to speak to the media, said the FCI last year had around 7,000 marine insurance claims. To handle that number of cases, it needs a broker who should have an experience of at least 3,000 claims.

But other brokers say that this condition eliminates all but the incumbent thus not ending up being a competitive and open bidding process.

This is the second tender that the FCI has floated in this matter after cancelling an earlier tender that had put the minimum experience level at 5,000 claims a year. Brokers say that only one company, A&M Insurance Brokers, met that criterion and none of the other bidders even had experience of handling 3,000 claims. As a result, floating a second tender putting 3,000 claims as the minimum only ensures that the incumbent wins the business again, say these brokers.

“We agree that the earlier tender put some stringent guidelines, which did not generate a good response from many brokers and not many could qualify to bid," says the same FCI official. “After due consultation with the Insurance Regulatory and Development Authority (Irda) and the Central Vigilance Commission, the FCI board has approved a fresh bid, which has relaxed entry norms. So we hope to get more number of brokers to bid for the tender."

The official claimed that FCI has received 12-13 responses from parties interested in bidding and that it would finalize a decision in the next 10 days. He declined to say if any of those respondents met the eligibility norms. The FCI’s website only provides information on the old tender.

Irda chairman C.S. Rao, however, denies any knowledge of the FCI consultations with his organization. “Tenders of public sector companies do not come to us for approval," Rao said. “We don’t have any information about such tender."